Southwest Airlines chief keeps his outlook cautious

Southwest flies high, but CEO is cautiousBenefits seen from bag policy, but fears persist

JENALIA MORENO, Copyright 2010 Houston Chronicle |
August 10, 2010

Road warriors and vacationers are keeping Southwest Airlines flights full, but the company's chief executive remains cautious about the future.

"It's a heck of a lot better than it was a year ago," said Gary Kelly, chairman, president and CEO of the Dallas-based carrier. "There's just a great deal of uncertainty on a variety of fronts that would argue for caution."

The event, at the George R. Brown Convention Center through Wednesday, will bring about $5.8 million to the Houston economy, according to the Greater Houston Convention & Visitors Bureau.

Attendees include the corporate travel representatives of major U.S. companies. Officials from hotels, car rental companies and airlines attend the event in hopes of wooing more business.

Southwest says 35 to 40 percent of its customers are business travelers who are increasingly on the road as the economy recovers. However, the airline has seen a significant increase in its number of leisure travelers in part because it is one of the few U.S. carriers that don't charge passengers for checking up to two bags.

"We're outperforming every single U.S. airline when it comes to revenue. Anecdotally, 'Bags Fly Free' is a component of that," Kelly told the Chronicle in an interview Monday. "We've seen a significant chunk of revenue go away from the industry and go to Southwest Airlines."

As more passengers realize airlines charge for checking bags and see Southwest's advertising campaign promoting its free bag policy, more leisure travelers are choosing Southwest over its competitors, Kelly said.

One percent of the market, or $1 billion a year, has shifted from other carriers to Southwest, he said.

"It's huge. Everybody hates the bag fees," Kelly said. "The evidence is pretty clear that we're doing something different from the industry and getting credit for it."

In July, Southwest reported operating revenue of $3.2 billion for the second quarter, up from $2.6 billion in the year-ago period. Kelly said the airline doesn't plan to start charging for bags.

The carrier plans to start service to South Carolina — to Charleston and Greenville-Spartanburg - in 2011 but doesn't plan to add jets.

However, he said, if the planned merger of Continental and United results in the combined airline reducing service to some cities, Southwest would consider adding them to its route map.

"We'll definitely be looking at new market opportunities," Kelly said. "Historically, without fail there are opportunities when there's consolidation."